Arrears up in January
Gosh is it that time of the year already? So, it is!
OK, here's the obligatory thread on whether mortgage arrears really exploded in January or not.
The first chart I've plotted below shows that 30+ day prime mortgage arrears (S&P RMBS) increased to 1.45 per cent in January 2019, up from 1.38 per cent in December.
This graphic confirms the recent uptrend.
Of course, the month of January is forever destined to be the peak of the arrears cycle, since as Aussies we're largely in Bali, or at Gold Coast, or at the Steyne pub, or doing whatever else people do in January these days.
Some historical context is therefore germane.
The chart below shows arrears rates in every January going back as far as I think is relevant for the purposes of this analysis.
It shows that the mortgage stress cycle hit its nadir in January 2016, with arrears trending steadily higher ever since.
I'm no alarmist, by any means, but I guess you'd probably call this an amber alert, or a DEFCON 3, depending upon your preferred analogy.
30+ day prime arrears are higher than they were in 2008 and 2010, for example, even if they are still below 1½ per cent, so we really wouldn't want to see arrears running too much higher from here.
Drilling down a level, arrears were low in Tasmania (1.10 per cent) and the ACT (1.18 per cent), and remained relatively benign in the three most populous states.
In recessionary Western Australia arrears took another leg higher to 2.94 per cent, while in the troubled Northern Territory 30+ day prime mortgage arrears are now well above 3 per cent.
Another graphic here below shows Western Australia breaking away higher.
Sadly the Northern Territory is not substantial enough to be cared much about from a financial stability perspective, and so will be left to fend for itself.
Although it's been called many times before, I do believe that Western Australia is now at the bottom of its housing market cycle, with almost all of the deteriorating indicators tapering off lately.
Rental vacancies are at a six-year lows in Perth and are declining fast, housing affordability has improved dramatically, while Dalian iron futures in Chin have been shattering all-comers records this week.
The iron ore spot price has accordingly gone ballistic, rapidly approaching a previously unthinkable US$100/tonne.
With the Aussie dollar much lower these days, this is going to result in a royalties bonanza now that the recent Cyclones have moved on, while perhaps more importantly for WA mineral exploration has come storming back from depressed levels.
The iron ore spot price has accordingly gone ballistic, rapidly approaching a previously unthinkable US$100/tonne.
With the Aussie dollar much lower these days, this is going to result in a royalties bonanza now that the recent Cyclones have moved on, while perhaps more importantly for WA mineral exploration has come storming back from depressed levels.
For stock holders, Fortescue Metals Group (ASX: FMG) has soared to the moon at $8.20, up from around $1.50 only three years earlier, while Rio Tinto (ASX: RIO) is now trading at comfortably above a ton, closing at $101.58 today.
Finally by borrower cohort, the switch to amortising loans has caused a certain level of mortgage stress for investors (1.40 per cent), although the arrears rate for owner-occupiers (1.69 per cent) has by and large followed a similar trajectory.
And, last of all, S&P Global provided a neat infographic to show the figures around the traps, with the resources jurisdictions well above the rest.
Source: S&P
The wrap: fraying at the edges
Overall, arrears are a bit higher than they were a year earlier in most states and territories, and they're now quite a bit higher than they were three years ago.
Today's lending finance figures confirmed a bounce in home loans in February immediately following the end of the Royal Commission into banking and financial services misconduct.
Lending for owner-occupier dwellings was up by 3.4 per cent in February 2019, driven by a substantial 8.2 per cent bounce in New South Wales, while lending to investors was up by a more modest 0.9 per cent.
However, these figures also need to be looked at in their historical context given that lending volumes were hammered by regulation (directly or indirectly) all the way through 2018, so I'll take a shufty at these stats next up.
